Saudi retail sector is its success story

Saudi Arabia’s retail sector is booming as the government eases restrictions on foreign investment and its young population keeps spending amid the fall in oil prices. The country is ramping up efforts to diversify its economy away from its reliance on the oil sector, which accounts for about 80 per cent of its GDP. Retail […]

Saudi Arabia’s retail sector is booming as the government eases restrictions on foreign investment and its young population keeps spending amid the fall in oil prices.

The country is ramping up efforts to diversify its economy away from its reliance on the oil sector, which accounts for about 80 per cent of its GDP. Retail is expected to be a main beneficiary of this drive with its population of 27 million – including about 20 million Saudis – particularly appealing to the region’s retailers.

The median age in the kingdom is 29, while more than 66 per cent of residents are between 15 and 59 years of age. The government has also recently allowed foreign investors to own 100 per cent of retail and wholesale businesses.

These factors have given UAE-based Lulu Hypermarkets impetus to expand its Saudi operations this year.

“We were one of the first companies to benefit from the easing of restrictions,” said Vijay Nandakumar, the head of corporate communications for Lulu Hypermarket. “We only moved into the country in August 2010 but have six hypermarkets there now, after opening in Dammam recently.” It also has eight neighbourhood stores run in conjunction with Saudi Aramco.

Lulu plans to launch four more hypermarkets this year: two in Jeddah and one each in Hail and Hofuf.

“In 2017 we will launch six more in the kingdom including in Mecca and Madina. It will take our investment in the country to over 1.5 billion Saudi riyals [Dh1.47bn],” said Mr Nandakumar.

The country has one of the fastest-growing retail sectors in the world, growing 11 per cent per annum with consumer spending up 18 per cent, year -on-year, in 2015, according to Arabian Centres, one of the biggest mall operators in the country.

The effect of lower government spending this year on retail as a result of lower oil revenues is not expected to be too dramatic, according to one analyst.

The sector is expected to achieve 10 per cent value growth this year compared with 12 per cent in 2015, said Fatemah Sherif, a research analyst at Euromonitor.

“This slight drop in growth is due to the macroeconomic issues,” she said. “Despite this though, the retail environment is expected to maintain healthy growth in 2016 following the FDI the government is encouraging, which is expected to fuel retail expansion and more international brands showing interest to invest in the Saudi market as well as the growing youth population and high effect of social media.”

New retail space in Riyadh, the country’s most-populous city, is projected to grow by about 45 per cent in the next three years to 21.5 million square feet, according to the property company JLL.

The surge in shopping mall construction has renewed many foreign retailers’ interest. Industry experts, including David Macadam, the chief executive of the Middle East Centre for Shopping Centres, consider the country to be a true regional retailing success story.

“Saudi Arabia is one of the largest and most successful countries in the region for retail. The sector remains very strong,” he said.